Is it better to use a Credit or Debit Card?

Many people will use a debit card or a credit card when they are spending money or drawing out cash. They can be very convenient, but there are times when it is better to use one over the other. It can be worth thinking about which will be the best for what you need money for.

If you are drawing cash, then most debit cards allow you to do this at a big selection of cash machines without any charge. However, if you draw cash on a credit card you will always have to pay a charge. This means that it makes a lot of sense to use your debit card most of the time. Of course, if you have no money in your account and so drawing cash will mean that you go overdrawn then you will be charged. So in this situation you will need to compare the price of going overdrawn with the price of a credit card cash withdrawal and see which is cheaper.

When you use a debit card to make purchases the money will come straight out of your current account. If the money is there, this is great, but if it is not, then you could go overdrawn and this could be problematic. Not only will there be interest to pay there may be charges as well. If you have an authorised overdraft then it will be cheaper, but if it is unauthorised, then it could be one of the most expensive ways to borrow money. By using money from your current account, you may also find that this will leave you short of money when direct debts or standing orders come out or when you need money for other things.

With a credit card you do not have to pay for purchases immediately. You will have to six weeks before you get a bill and then you will have the option of paying right away or just paying a small minimum amount immediately (and each month following) and paying the rest off when you wish to. Although this sounds fantastic, it may not be so good if you take into consideration the interest rate. Borrowing on a credit card can be expensive and you need to be aware of the interest rate and how much extra you will be paying if you do not pay off the bill immediately.

A credit card does have other advantages over a debit card. It can give you a certain amount of insurance cover on your purchases. This means that if you buy something that is not as described and the seller will not give you a refund, the card company may be able to reimburse you. It is also more secure for making purchases online. If someone gets hold of your card details and makes purchases with it, the card issuer will reimburse you. If this happens to you with a debit card, it is far harder to get reimbursed and may not be possible. This is why many people choose to use a credit card online rather than a debit card; as they feel that it is more secure.

Sometimes, when you are paying for goods, there will be a charge for using a credit card. This could be with online purchases, bill payments, insurance or buying expensive items like cars. You will have to decide whether you think that it is worth paying the charge or not. This could depend on the amount of the charge and the cost of the item you are buying as well as how risky you think it might be using a debit card.

There are debt risks with using a credit card, which are not so problematic when using a debit card. With a debit card, the money you spend will be taken straight form your account. If you do go overdrawn, the debt will be paid off as soon as money goes back into your account, which will normally be when you get paid. With a credit card you will not have to pay it back immediately. This can lead to some people getting into a lot of debt. If you get multiple credit cards, it can even be difficult to know how much you have spent on each and the debt could build up without you even noticing.